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Saturday, May 26, 2012

How to avoid getting overwhelmed with credit card debt

It’s easy to get overwhelmed with credit card debt

It starts with spending more than normal to try earning extra rewards or
points. It continues with treating everyone to drinks at the bar or food
at the fancy restaurant. It continues with buying the newest iGadget
update.

Then it can end up with overwhelming debt. Full statement balance
payments get reduced to minimum credit card payments. This can lead to
barely making the minimum payments. It can lead to late or missing
payments, then a ruined credit score.

Next thing you know, you can get denied for an auto loan, a mortgage
loan, an apartment, or even employment – due to your ruined credit.

Credit cards can empower you and make you feel wealthier than you really
are. They can also destroy you.

Credit cards can also provide tons of rewards if used wisely. I'm
a big advocate of making all purchases possible on a credit card for the
protection, benefits, rewards, and tracking of purchases. The key with
credit card use is responsibly maximizing cash/points/miles back on normal
purchases and conscious spending.

How do you use credit responsibly?

1. Always track your spending

If you don't know how much you spend each day, week, or month, how will
you know where your money is going? How will you know how much money you
have left in your checking account to pay off your credit card statement in
full? Don't wait for your statement to find out how much debt you're
in.

I frequently make payments to the account to bring down the total balance

2. Pay off your credit card balance frequently and in full

Did you know, you don't have to wait to pay off your total statement
balance when you receive your bill? Most credit
card companies allow you to make multiple online payments per statement period. As soon as a few credit card charges clear and get posted, you
can pay off that amount. Online payment is fast and easy. I'm not
saying to pay off every single charge immediately, because some banks do limit
the amount of payments you can make to your credit card per statement period.
However, paying off your credit card several times a month is a good way
to keep your credit card balance in check. Regardless of whether you
make one credit card payment or several payments, make sure you always pay
off your statement balance in full.

I've called a few major banks and found out the following information on
making multiple online payments to your credit card within each statement
period:

Chasehas no limit for the number of payments which can be made towards your
monthly statement, however you can only make one online payment within
a period of three days (the time it takes a payment to clear).

Citibankallows 4 online payments per statement period.

American Express and Bank of Americaboth have no limit to the number of online payments per statement,
although you need to allow at least 24 hours to pass prior to making
another payment.

Disclaimer: these are the details for the credit cards that I use.
You should call the number on the back of your card to make sure which
payment policy applies to your credit card.

3. Don’t charge with a credit card what you can’t pay in
cash

Having credit cards don’t hurt you, but maxing them out does.
Don't spend more on your credit card than you normally would just to try
to earn some extra rewards or points. It's hard to get rich from cash
back. Credit card interest rates average around 12% and can be over
29% APR. Any balance you carry on your credit card negates any rewards
earned. 61% of Americans carry a credit card balance every month; don't be one
of them.